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No Turkish delights for 2016

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Many loans bankers focused on Central and Eastern Europe have pinned their hopes on Turkey as a source for deal flow this year, as Russia remains thwarted, but it will not bring the hidden treasures bankers expect.

Turkish loans have made up a growing share of CEE loan issuance since 2014, when Russian sanctions took effect. In 2013 Turkey accounted for 32% of total Eastern European loan issuance — roughly the same level as each year since 2009 — but the proportion grew to 42% in 2014 and 52% last year, according to Dealogic.

The onus, for loans bankers, is increasingly on Turkey to deliver, as the sanctioned Russian loan market remains subdued and, within Turkish loans, bankers hope corporate loans will provide the leg-up.

Turkey can always rely on the twice yearly issuance from the large commercial banks which sign two deals of around $1bn apiece every year.

“It’s always a busy year for the FI refinancings,” said one banker. “Anyone covering Turkey has always got something to do but it is a little underwhelming in terms of a hard pipeline, some of the M&A stuff out of Turkey such as the United Biscuits acquisition, we won’t see that again.”

As the Turkish banks typically borrow money very cheaply — paying around 75bp for one year loans last year — international banks seeking decent returns in Turkey must rely on corporate deals.

In 2015 there was a handful of loans to keep international banks busy. 

Turkish healthcare company Acibadem signed a $505m three year loan in June 2015 with a margin of 295bp over Euribor/Libor. Bank of America Merrill Lynch acted as bookrunner. 

Turkcell signed a $1bn loan in September last year, paying a margin of 200bp over Euribor/Libor, with BNP Paribas, Citi, HSBC, ING and Intesa Sanpaolo acting as bookrunners.

Regular issuer Turk Telekom signed a number of loans in 2015, the largest being a $830m five year facility paying 180bp over E/L with 14 banks in the syndicate.

In 2016 bankers expect a number of Turkish corporates to come to the market — one banker said he was in discussions for three or four deals — but the deal flow will not be enough to lift a stagnated CEE loan market.

Tuesday's terrorist attacks in central Istanbul are a bloody reminder of the geopolitical issues in Turkey and Turkish treasurers will be increasingly cautious about doing M&A in this environment.

“[Banks’] allocations for budgets is much higher than what Turkey can provide,” said one banker. “The activity is bigger than it used to be in the past but still not that large.”

Another banker said there would be a strong level of activity from Turkish blue chips but there would be a slowdown in deals from lower-rated Turkish corporates which would be deterred from issuing loans because of weak market sentiment.

 “If you move down the food chain to second tier corporates, these will struggle,” he said.

While loans may be subdued, the CEE bond market is expected to see a healthy dose of deals. Erste Bank predicts that around half of the CEE sovereigns plan to issue bonds in the first quarter of this year.

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